Boosting Value for Your PR Firm
There is a right way to build a firm’s value. There is a formal process that works. The hardest step for most firms is the very first, most critical one: shifting the mindset of managing the firm as if it were to be sold tomorrow to an outside buyer. This mindset shift is critical. It gives the agency owner(s) the highest-valued end game to work toward.
Without this mindset, owners don’t plan realistically for their exit strategy — and every owner has an end game in mind. Selling internally to employees, selling to an outside firm or running the firm in perpetuity through management succession — all of these methods leave unrealized value on the table.
The mindset of managing your PR/counseling firm as if you were to sell it not only maximizes value, but also maximizes profitability. This mindset forces an owner to put his or her best foot forward each day by believing that an external sale is imminent and that buyers are courting them.
Solid Financial Management
What is the easiest way to maximize value? The answer is simple. Get to the mark of 20 percent operating profit.
One proven method for understanding and effectively managing a PR business is the use of financial benchmarks. Knowing the key ratios and their benchmarks gives management the tools to fine-tune its financial operations in order to increase its overall net worth and value.
Fundamentally, benchmark analysis is the process of calculating comparisons between specific pieces of information readily available on your agency’s balance sheet and PL.
While the numbers themselves are highly important, by means of ratios you can quickly look at relationships between numbers and make a solid assessment of your agency’s financial health.
You can use benchmark analysis to examine your PR agency’s current performance — now and in comparison to past periods. You can also use benchmarks to compare your PR agency’s performance to that of other companies, such as your competitors, or other companies that are doing extremely well or extremely poorly.
The benchmarks you calculate may reveal some broad trends that can help with your decision-making. It is not necessary to calculate ratios to more than one decimal place. They need only be accurate enough to prove useful to you.
You need someone with the skill set to give you accurate and timely information on which to make decisions.
PR firms must repair financial problems before presenting the agencies to prospective buyers. Presentation becomes a major concern for the seller in anticipation of close inspection by prospective buyers. And it’s only natural to try to display your best face when you’ve decided to cash in your most valuable asset.
How do you prepare when that asset is a PR firm?
There are several steps you should take when you believe you might be ready to sell. The end result should be that you gain the prospective buyer’s trust and confidence. PR firm principals should first and foremost be aware of any gaps in their financial statements.
What Buyers Want to See
The accounting records for your firm need to be in perfect shape before you start talking to a buyer. You should have CPA financials. Unfortunately, many firms don’t have strong financial statements, and that immediately makes them lose credibility in the eyes of buyers. You’ve got to have professional financial statements. If you don’t, it makes your firm look amateurish and sloppy. You immediately lose value, both tangible and intangible.
Staying on top of record keeping throughout the life of an agency can make a big difference in the long run. Financial statements come in three levels of rigor. The first type is certified financials. These are statements that have been audited by the bigger, well-known firms. The highest level of financial statement is crucial for the larger firms (those with more than $20 million in revenue).
However, for smaller firms (with revenues under $20 million), a review report demonstrates that a CPA firm has signed off on the financial statements and has assumed a greater level of accountability. Review reports are generally affordable for most PR agencies and can be completed by most CPA firms. A review report has major credibility with buyers, bankers and other third parties.
The last level of financial statement is a basic compilation, which is generated by the firm itself. No serious buyer will accept these statements at face value. When it comes to length of time, buyers will generally want to view detailed statements that date back at least three years. They’ll also want interim financials for the current year.
This is a book excerpt from "Doing It The Right Way: 13 Crucial Steps For A Successful PR Agency Merger or Acquisition," by Rick Gould, managing partner of Gould+Partners. He can be reached at firstname.lastname@example.org or 212-896-1909.